HSBC Holdings Plc found itself subject to a significant financial penalty of £57.4 million ($73 million) imposed by UK authorities, revealing a stern response to the financial institution's shortcomings concerning the handling of deposits eligible for protection in the event of the bank's failure.
The Prudential Regulation Authority (PRA) underscored the gravity of the situation by deeming this penalty its second-highest ever, emphasizing the severity of the failings that unfolded over the seven-year period spanning from 2015 to 2022 as reported by Reuters.
The PRA shed light on a range of deficiencies, with a primary concern being HSBC's failure to accurately identify deposits qualifying for protection under the Financial Services Compensation Scheme (FSCS). Such lapses were deemed to strike at the very core of the PRA's safety and soundness objective, as highlighted by Sam Woods, the Chief Executive Officer of the PRA.
Woods stressed the critical importance of all banks fully adhering to regulatory requirements, particularly those related to preparedness for resolution in case of a financial crisis.
In accordance with depositor protection rules, financial institutions are obligated to establish robust systems, controls, and governance to ensure the swift and orderly disbursement of funds to depositors in the event of a firm's failure. Under the FSCS, client deposits of up to £85,000 are insured and guaranteed for full reimbursement in the unfortunate event of a bank's insolvency.
The substantial fine of £57.4 million imposed on HSBC stands second only to the £87 million penalty levied on Credit Suisse by the PRA in the preceding year, relating to its dealings with Archegos Capital Management.
Despite the regulatory action, the market response to HSBC's situation was relatively muted, with the bank's shares exhibiting minimal fluctuations in early Tuesday trading in London.
The PRA divulged that it initiated contact with HSBC in October 2019, seeking clarification on how the bank was treating a specific client's deposits concerning their eligibility for protection under the FSCS. In response, HSBC established an internal working group to scrutinize the accuracy of marking deposits eligible for the protection program.
However, the bank's failure to promptly inform the PRA about the issue until April 2021 drew criticism. Despite becoming aware of the potential extent of its problem with mismarked deposits, HSBC neglected to communicate this information to the regulatory authority in a timely manner.
In response to HSBC's lack of timely communication, the PRA reproached the bank for not being "duly open and cooperative" over an approximately 15-month period. The regulatory authority emphasized that this was vital information, which it would expect firms to share fully and promptly as part of their responsibility to maintain transparency and compliance.
Originally set at £96.5 million, the fine imposed on HSBC saw a reduction due to the bank's cooperation, early admission of certain rule breaches, and its agreement to a settlement, as clarified by the PRA.
In an emailed statement, an HSBC spokesperson expressed the bank's satisfaction in resolving the matter, highlighting the recognition of its cooperation with the investigation and the comprehensive efforts made to fully address the identified issues by the PRA's final notice.
30.01.2024
Comments